Choice breaches $200 mark

Markets
May 6, 2013
by WLJ

Things were looking up last week as strength in the cash markets and in product values achieved long-hoped for levels.

The cash trade developed relatively early given the recent trend. By Wednesday, trade had begun at $128-129 live in the South Plains and $207 dressed in Colorado. The activity continued Thursday morning with dressed trade going for $205 in Nebraska and $207 in the Corn Belt on active trade. By the afternoon, live trade had developed in Nebraska from $128.50-130.50 and the majority of dressed trade was completed at $206-207.

The April live futures contract went off the board last week at $128.40, a gain of 55 cents over that final half week. The new near-term contracts of June and August gained modestly over the week, seeing Thursday afternoon with $123.58 (a gain of 98 cents) and $123.70 (a gain of 43 cents), respectively.

Product values saw some exciting numbers last week when the Choice cutout first flirted with, then teased, then surpassed the coveted $200 mark. Thursday afternoon’s PM cutout report showed Choice at $200.58 and Select at 190.64, a $7.69 and $6.21 gain, respectively, compared to the prior Friday’s cutout close. But high prices, as anything, are double-edged swords.

“Along with the sharply higher cutout values came buyer resistance and talk began to surface as to whether or not demand is strong enough to sustain choice boxed beef values much above the 2003 highs of $201,” warned Vetterkind. “We are probably getting to the top end of the practical spring beef market and while the market perhaps doesn’t have to break very hard next week, further gains may be limited as a large majority of May beef needs may be covered.”

Vetterkind also opined that while packers may claim their needs are covered, forward beef orders will likely keep them in the market for live cattle.

The prior week was confirmed at a 625,000-head production rate, well above the 610,000-615,000 prediction. Industry expectations for last week were for a 620,000-628,000 production week. Steve Meyer and Len Steiner of CME’s Daily Livestock Report discussed the change and its potential oddity in the current situation:

“The increase in cattle slaughter appears curious since packer margins continue to be constrained despite reports of improving demand and expected higher beef prices going into the grilling season. Looking at the breakout of slaughter numbers, however, it becomes clear what is driving the year over year increase in numbers. The estimates steer and heifer slaughter currently stands at 480,000 head per week, 2.5 percent LOWER than year ago levels… On the other hand, cow and bull slaughter has increased sharply.”

They reported cow and bull slaughter rates are running 21.8 percent above the same time last year. This increased supply has dropped the value of 90 percent lean trim during the time of year it is usually the highest. Over the week, 90 percent trim values dropped $2.23 by Thursday afternoon with a value of $200.91.

Feeder cattle

Cash feeder prices were mixed across the country, particularly on yearling steers and slaughter cows. California: The most recent sale at the Escalon Livestock Market, medium and large #1 class (#1) steers weighing between 600-800 pounds were steady with the prior week at $90-118. Comparable heifers also stayed pat at $90-110. Holstein steers and high-yielding slaughter cows remained steady at $70-85 and $70-75, respectively.

Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City saw a preference for heavy yearling steers. Steers over 700 pounds were up $2-3 while those over 900 pounds were up $3-5. Heifers followed a similar trend but to the tune of up $2-3 with preference for heavier animals.

Lighter steers and heifers were called steady to firm on a light test. One hundred and eighty-five head of 768-pound #1 steers sold for $138.34.

Missouri: In Missouri’s auctions, prices were mixed based on where you were. Yearling steers and heifers were generally up compared to the prior week’s sales with steers ranging anywhere from steady to up $6, with most quoting the up $2-5 area. Heifers also were around that area, but in one sale, light heifers saw prices as high as $5-10 up. Mid- 700s #1 steers weren’t overly plentiful, but they ranged from $123.96 for the heaviest offering in Farmington to $138.34 for the lightest offering in Vienna.

Nebraska: The Huss Platte Valley Auction saw most yearling steers selling up $3-5, with the exception of those over 900 pounds which were steady. Heifers were up $4. Slaughter cows were called steady to up $1 while bulls were steady. A good collection of 779-pound #1 steers sold for $140.22.

Oklahoma: In the El Reno Livestock Market, feeder steers sold steady to $1 higher with heifers mostly steady with the prior week’s sale. Calves had no trend due to minimal sales in the prior sale. Good numbers of mid-700s #1 steers sold for between $134.68- 138.13. At McAlester’s Union Livestock Market, the opposite was true; very few yearlings to be had and plenty of calves. Light steer calves were down $4-6 while heavier calves (over 550 pounds) were up $3-9. Heifer calves followed the same trend but with less volatility, with lights going for steady to down $4 and heavier heifers being up $1-6. Fifteen head of mid-700s weight #1 steers sold for between $124.21-129.02.

Feeder futures took a hit last week when corn futures gained sharply on Monday and then again on Wednesday after a decline from Monday’s highpoint. By Wednesday’s close, both near-term contracts had lost roughly $2 from their prior Friday close, but tried to bounce back Thursday morning with some threedigit gains. By Thursday afternoon, the May feeder contract had dipped $1.20 to $140.60. The August contract lost $1.68 over the week with $149.35. Despite this, Vetterkind had hopeful words for the near future.

“So far August feeder cattle have held near term support at $148 and if we can continue to do so the market remains in a $148-$155 trading range.” — WLJ

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